It all depends on how long you drive a car. If you only keep it for 2-3 years, lease. If you drive them longer, buy.

Also, remember that leases limit the number of miles you drive. If you don't drive a lot, leasing might work. If you travel a lot or have a long commute (distance-wise, not timewise), you could go over your limit and have to pay a penalty on the lease.

Well, the mail hasn't stop coming on that one -- typically from people who lease cars for a living and people who pay for leased cars.

"Your answer was not a good one," one reader wrote. "To say 'NEVER, NEVER lease' is wrong. Leasing is not for everyone. I will grant you that. But, I will ask you this. If someone trades every 4 years -- which seems to be about average -- why write out a check for some $25,000 to $40,000 to BUY a car that is a depreciating, wasting asset?"

I've heard this argument before. It sounds educated and sensible to talk about not investing in an asset that loses value. But that is simply nonsense.

Come on, people. If you believe that you shouldn't buy a depreciating asset, then we all should rent our clothes, shoes, silverware, sheets, towels, television sets ... See where I'm going?

The same people who praise leasing would probably chastise low-income people who patronize rent-to-own stores.

Renting a car long-term -- as in leasing -- is a bad financial move for 99.9 percent of the people who do it. The only exception may be if you can write the lease off on your taxes.

Yes, you can get into a lease for a monthly payment that may be less than the monthly loan payment for the same car. And yes, if you are going to trade in your car every three or four years, leasing may seem like a better deal.

But I challenge the financial common sense of trading a car in every three or four years. Leasing is basically renting a car you can't afford to buy. Doesn't that tell you something?

I never want to have a car longer than the warranty and if you lease they do all your service for free, fix everything throughout the lease term right down to windshield washer fluid...

If you use the car for business a lease almost always makes more sense because of the tax benefits. The one thing that would mitigate against a lease is if you drive more than the maximum number of miles per year. At about 25 cents (I think) per mile after your max, that can run into thousands of dollars at the end of the lease term and is simply wasted money.

Explain How A Car Lease Works
Hear Dave break down, in detail, what a car lease is and why you don't want it.
QUESTION: Listener asks Dave to break down the mathematical flaws in a car lease.

ANSWER: A car fleece is basically renting a car. You pay $400 a month and at the end of the new car lease, you turn it back in. If you want to buy it, you are buying it for what they estimate at the beginning of the fleece to be the market value. At the end of the lease, its called the residual value. If you pay $400 a month for 60 months, you pay $24,000 before turning it in. The car will not have gone down in value more than that, because the car companies would lose money if it did. When they get the car back, you will have paid them more than the car has depreciated during that time.

During that time, youre maintaining the car as if you owned it. Youll get charged for excessive wear and tear, or if you put too many miles on it. If you rent it for $24,000 and it went down $15,000 in value, then it cost me $9,000 to rent this car for this period of time. That is their profit during that time.

Another thing is that the interest rates on a vehicle lease are not disclosed because the Federal Trade Commission has determined that this is not a debt, so there is no federal disclosure involved. Therefore, you have no truth in lending disclosure sheet. The interest rates you get charged are unbelievably high. Thats where youll realize you got screwed over.

People get sold automobile leases because they are told that its what sophisticated people do. But as it turns out, the car companies make more money on leasing you the car than if you bought the car with cash, according to the National Auto Dealers Association. Broke people think how much down and how much a month. Rich people think how much. If you cant pay cash for a car, then ride a bicycle. But dont lease a car.

What are the benefits of leasing a car vs. buying a car? I would love some opinions from those who have done either, and which way I should go with my next car. Thanks!

Click to expand...

Buy it, run it into the ground for 10 years, and save yourself a fortune. Make sure you don't buy new - utterly pointless, unless (potentially) there is some kind of lifetime warranty based on a new purchase and it is non transferable. Otherwise, you're looking at a 50% loss over the first 24 months (depending on the brand).

Get something between 1 and 2 years old with the remainder of the factory warranty.

The only benefit to leasing is that if it turns out you hate the reality of driving a particular vehicle you can turn it in after 24 months.

What are the benefits of leasing a car vs. buying a car? I would love some opinions from those who have done either, and which way I should go with my next car. Thanks!

Click to expand...

There are three ways to finance your next car.

LEASE LEASE LEASE!

Do NOT, I repeat NOT EVER buy a car unless it has low depreciation, and you pay for it, 100% in cash.

Let's take the number $25,000, which is a good number for a mid-size car with a number of options on it to have.

You can decide to buy a car, pay 5% interest and pay $2000 ($27,000) more for a car that's really worth about $17,500 on the market today out of the lot. No car, unless it's a Mercedes or a Rolls, will not depreciate at least 25% the first 100 miles you drive it. Why? Because if the dealer tried to sell that exact same car at an auction (which is where all the used car dealers get their cars) that's would they pay for it. Do NOT, I repeat do NOT ever use Kelly Blue Book when working with a car dealer. Most dealers think it's a joke. They use a red book or a black book, which is a very, very tiny book that gives an average of what your car sold for in x, y z conditions at auctions within the past 90 days in your area. Your $25,000 car will sell for $17,000 at an auction and the used car dealer will try to sell it for the exact same price you try to buy it new for. AND don't hold onto a car for more than 3 years - there are too many technological breakthroughs on the horizon with car safety and fuel economy. A car is much like a computer - within 6 months it will be completely obselete. If you want to run your car into the ground and put on 100,000 or 200,000 miles - fine buy it - but realize that unless you're buying a Hyndai, your warranty will expire within 3 years.

Now - if all you care about is a car to get you from point a to point b with a few extra ammenities, LEASE. Out of the $25,000, you're paying for 60% of the car plus the rate factor. A $25,000 car will go for $375, maybe $425 a month with no money down in a lease. The credit company decides the residual (the amount of money you would need to put down at the end to buy the car for) so the dealer can't change that. They can indeed though change the cap cost by giving you a discount off of the actual selling price of the car. So instead of leasing a $25,000 MSRP car, you could actually lease a $19,000 car with rebates (which are sometimes a bit less) and an additional discount. Always ask what the residual is on the car you want before leasing - they know this because Detroit always sends them this at the beginning of the month. If your residual is below 45%, don't lease the car. If the residual is around 60%, that's a great deal.

Don't put any money down when leasing a car unless you have shaky credit. There is absolutely no reason to spend more money than the percentage of the car you're leasing in monthly payments. The only thing money down will do is lower your monthly payments - but that's money you would have spent anyway! So instead of putting the money down, you can invest that money in a money market or CD, make interest off of it and use it towards your monthly payments.

Remember: The bigger and nicer the car, the better the residual. Small cars are terrible leasers. Big giant cars are terrible leasers. A mid size car or SUV is always a good lease. Pick up trucks, are terrible leasers. Ford Fusion, Ford 500, Ford Explorer and all the vechicles like them should be good leasers. A lease residual will not change for dealer to dealer unless one dealer is in a completely different region of the country.

Come in with a plan. For every $5000, a car will cost $100 for a finance and $75 a month for a lease. Know what you can afford per month. This will it make it very easy to deal with a salesperson. You cannot lease a used car, you can only lease a new car. Very few new cars have more of a mark up in the MSRP of $2500 or more. Very few used cars will have a mark up for $5000 or more.

If your credit score is 700 or above, you can get a good interest rate. You can always negotiate everything with your salesperson, his/her manager and the finance guy. The time to stop negotiating is when you sign the dotted line. From the time you get in the door until that time is when you should be haggling.

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